Britain's Government-appointed banking commission has unveiled the most
radical shake-up of industry regulation in a generation in an attempt to
make banks safer and better value for consumers.

Sir John Vickers, chairman of the Commission, said the boards of large British-based banks would have to "pay very, very close attention" to the implications of moving to another country.Photo: Geoff Pugh

The Independent Commission on Banking (ICB) was accused of "bottling it" by not proposing a break-up of the banks. But experts said that its demands that lenders provide additional protection for their retail customer base will require big changes.

The commission recommended that banks' current accounts and mortgages should be "ring-fenced" from other units to ensure they are able to function in the event of a failure.

• Large banks should hold a minimum of 10pc equity and probably a lot more.

Shares in Barclays, Lloyds Banking Group and Royal Bank of Scotland closed the day up amid relief that the report – set to be finalised in September – was less draconian than some had expected.

There had been concerns that tougher proposals would drive the banks away from the UK. However, the report contained a warning that depositors would lose the state-guarantee on their savings if their bank chose to redomicile as a result of any changes.

Sir John Vickers, chairman of the commission, said the boards of large British-based banks would have to "pay very, very close attention" to the implications of moving to another country.

The ICB said any attempt by a bank to engage in "regulatory arbitrage" could be illegal under European Union law and cautioned that institutions trying to do so risked severely damaging their business. "Such moves could attract large political and reputational risks and could potentially jeopardise a bank's stability [e.g. if UK depositors withdrew their custom in large numbers]," the commission warned.

Barclays, HSBC and Standard Chartered have each repeatedly made clear their concerns over the direction of UK regulation and have said they could relocate to another country if they felt their business was being damaged by any new rules.

Clare Spottiswoode, the former gas regulator and a member of the commission, said many UK savers might be worried about the loss of the government guarantee if they continued to hold their money with a bank that was not domiciled in the UK.